Levels of share buybacks among Bermuda cat players reflect tough market conditions, with the renewals likely to be shaped by the influx of convergence capital.
An examination of three prominent cat players in the Bermuda market—Montpelier Re, RenaissanceRe and Validus—provides some indication of the pressure that reinsurers are facing from the influx of alternative capital.
All three firms moved to increase the capacity of their share repurchasing programmes in recent months—up to $500 million in the case of RenaissanceRe and Validus, and to $279 million in the case of Montpelier Re.
According to a player in the Bermuda market who spoke with Bermuda:Re, share buybacks are indicative of the threat posed by convergence capital, which is placing considerable downward pressure on property cat rates, particularly in the US.
Those opting to ramp up their share repurchases are likely looking to put capital to work in other ways, rather than chase business down. Share buybacks, dividends and M&A are all likely to be possible strategies pursued, as they seek to overcome market conditions influenced by a succession of benign cat years and an influx of new capital.
The US rate environment is considered particularly troubled, with the source telling Bermuda:Re that there had been talk of some markets even leaving Florida altogether, as rates there come under potentially unsustainable pressure.
According to a recent report by investment bank, Nomura, rates in US property cat will decline by between 15 and 20 percent at the renewals. The question is whether this will be the bottom of the current cycle.
Bermuda cat players with a traditional emphasis upon the US and Florida will likely face a tough January 1. Third party capital vehicles are regarded as a potential solution, harnessing investor interest in the space, but for many their teeth are yet to be fully cut. Just how the coming renewals will change the property cat landscape will only be fully realised once the dust has settled at the end of the first quarter.
Convergence capital, alternative capital, share buybacks, reinsurance